Anti-Deficiency Laws

Some states have laws that prohibit deficiency judgments and protect borrowers from having to pay a lender for losses following a foreclosure sale.

An "anti-deficiency law" is a state statute that prohibits lenders from suing borrowers for deficiencies (the difference between the amount owed on a mortgage and the price at which a house is sold in foreclosure), often on mortgages secured by a borrower’s principal residence. Anti-deficiency laws typically provide no protection for second or third mortgages, home equity lines of credit, and mortgages secured by vacation or investment properties.

This page outlines the general laws by state, with links to each state for more detail.

Does Your State Allow Deficiency Lawsuits?

Most states allow lenders to go after borrowers for deficiencies. In most judicial foreclosure states (states where foreclosures go through the court system), lenders can request repayment of the deficiency as part of the foreclosure lawsuit. Some judicial foreclosure states require lenders to file a separate lawsuit to recover the deficiency. Most nonjudicial foreclosure states (states where foreclosures don’t need to go through court) require lenders to sue borrowers for the deficiency.

Many of the states that allow lenders to seek deficiencies cap the amount that lenders can recover to the difference between the outstanding loan amount and the house’s fair market value. For example, if the amount owed on your mortgage is $450,000, your house is sold in a foreclosure sale for $200,000, and the fair market value of the house is $300,000, in a deficiency lawsuit your lender can recover only $150,000 ($450,000 minus $300,000), even though the deficiency was actually $250,000 ($450,000 minus $200,000).

See the chart below to find out whether your state allows deficiency lawsuits.

Will Your Lender Sue You for the Deficiency?

Even if your lender has the right to sue you for a deficiency doesn’t mean that your lender will. Lawsuits can be costly, and many borrowers losing their homes to foreclosure have little in the way of income or assets for the lender to go after. But if you live in a state that allows deficiency lawsuits, and you’ve been thinking about filing for bankruptcy for other reasons, filing for Chapter 7 bankruptcy will wipe out your liability to repay any deficiency.

Yes, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

Not in nonjudicial foreclosure, and not in judicial foreclosure of mortgage used to purchase property with four or less units (one of which is borrower's primary residence), seller financed loans, and refinances of purchase-money mortgages that were executed on or after January 1, 2013 (except to the extent that
new principal was advanced which is not applied to the purchase-money
loan.)

Yes. Not allowed if certain conditions are met. For example, if the lender elects to file a foreclosure lawsuit and asks the court to disallow the redemption period, then the lender waives its right to a deficiency.

Yes. If lender is the purchaser at the foreclosure sale, borrower may defeat deficiency claim or reduce amount of judgment by showing the fair market value of the house was equal to the outstanding debt at the time of the sale or the foreclosure sale price was substantially less than the house’s fair market value.

Yes, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

Not if all of the following conditions are met: (a) lender is a financial institution; (b) mortgage loan originated on or after October 1, 2009; (c) property securing mortgage is a single-family dwelling owned by borrower at the time of the foreclosure sale; (d) mortgage debt was used to purchase the property; (e) property was borrower’s primary residence continuously from the time mortgage was executed; and (f) borrower did not refinance the mortgage. Allowed in all other foreclosures, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

Yes, but amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. If lender gets deficiency judgment, borrower gets six-month right of redemption.

Allowed only if debtor was personally served with summons or appeared in foreclosure action. Amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

Yes, but not if the lender uses a nonjudicial foreclosure process and the mortgage was a purchase money mortgage or for certain loans that are nontraditional (for example, pick-a-payment or option ARM loans) or is a rate spread loan (where the annual percentage rate exceeds a certain threshold) and the mortgage secures the borrower's principal residence.

A deficiency judgment is not permitted
if the property is residential,
owner-occupied,
one to four units, and 40
acres or less. The lender may obtain a deficiency
judgment if the property is (a) agricultural land consisting of more than 40 acres (but the
amount will be limited to the difference between the amount of the debt and the
fair market value of the land at the beginning of the foreclosure), or (b) any
other type of property (but the amount will be limited to the difference
between the amount of the debt and the appraised value as determined by a
licensed appraiser appointed by the court).

Not in nonjudicial foreclosure if borrower sends written notice by certified mail to lender ten days before foreclosure sale that property is borrower’s homestead and that borrower elects against deficiency judgment. Allowed in all other foreclosures, but amount that may be recovered is limited to lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

Not in nonjudicial foreclosure. Not in judicial foreclosure of property with four or fewer residential units, one of which is occupied by the borrower, the borrower’s spouse, or the borrower’s minor/dependent child as a principal residence.

Yes. Borrower may petition court for appraisal within 30 days after foreclosure sale; amount that may be recovered would then be limited to the difference between the outstanding debt and the appraised value.

Not in voluntary foreclosure (similar to deed in lieu of foreclosure). Allowed in all other foreclosures. In nonjudicial foreclosure, if lender is purchaser at foreclosure sale, amount that may be recovered is limited to the difference between the outstanding debt and the fair market value.

Yes. Borrower may ask the court to determine fair market value at the time of the foreclosure sale; the amount that may be recovered is then limited to the lesser of (a) the difference between the outstanding debt and the fair market value, or (b) the difference between the outstanding debt and the foreclosure sale price.

Yes. In strict foreclosure (court orders transfer of property from borrower to lender without a sale), amount that may be recovered is limited to the difference between the outstanding debt and the fair market value. In typical judicial foreclosure, if lender is purchaser at foreclosure sale, amount that may be recovered is limited to the difference between the outstanding debt and the fair market value.